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Hedge funds see all-time high assets despite ongoing outflows

Hedge funds continue to struggle this year with divergence among large and small funds growing more stark.

What's happening: Inflows and strong performance by large fund managers pushed the total level of assets under management to an all-time high in the first 6 months of 2019, despite an overall decline in assets. The HFR Global Hedge Fund Industry Report shows hedge funds increased assets to $3.245 trillion, edging past the previous record set in the 3rd quarter of 2018.

Between the lines: The redemptions were largely concentrated in smaller funds, as managers who oversee strategies with less than $5 billion of assets saw net outflows of $10 billion, while funds with more than $5 billion of AUM saw inflows of $5.4 billion. It was the first quarterly net inflow of capital for the large funds since the 4th quarter of 2017, HFR's data shows.

Hedge funds are still struggling broadly as the stock market continues its bull run. Even simple index funds that mix 50% global stocks with 50% global bonds, offering investors some downside protection at much lower cost, have outperformed much of the industry in recent years.

What they're saying: Peter Laurelli, global head of research at data firm eVestment, notes in a recent eVestment hedge fund report that the majority of hedge funds continue to see investors pull their money out, and flows for the quarter were "the worst the industry has seen in a second quarter for as long as we have tracked the industry’s flows [since 2004]."

The bottom line: That's bad news, especially since the first half of the year was the best hedge funds have performed since 2009 and there are around $13 trillion of negative-yielding bonds in the world, making a potential source of competition less attractive.

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